2019: Property Won’t Know if it’s Arthur or Martha

Next year Australian property will be hit by multiple forces – some for the good, some for the bad.

But, by the end of 2019, there will be greater optimism in
property than there is now.

Here’s What Will Push
the Australian Market Down

Over the last 12 months national dwelling values have fallen
by 4.1 per cent which is their largest annual fall since December 2011. As the
year progressed, the rate of value decline got more rapid, particularly within
Sydney and Melbourne.

Unlike previous downturns, this market decline has been
primarily due to regulatory decisions; the Australian Prudential Regulation
Authority (APRA) has obliged lenders to be way more cautious on to whom they
lend and how much. As a result, there is
much less capital in the market.

The first half of the years will see more governmental
downward pressure impacting house prices.

In February, the Hayne Royal Commission into banking will report
to the Treasurer – probably recommending an overhaul of the banking system.

Then, we have a Federal Election. Assuming an ALP victory, we are likely to see
new policies that will have negative impacts on property prices.

And it’s not just regulatory changes that will add downward
pressure on property. In a declining
market, any potential buyer will hold off buying expecting prices to be even lower
in a few months’ time.

Just the expectation that prices will drop forces them to
drop further.

But even though we’ve got this correction now, house prices
in Sydney are still around 40 per cent higher than they were in 2012-13.

Here’s What Will Push
the Market Up

One reason that house prices are on firm ground is that APRA
started its macro-prudential regulation on lenders in December 2014. So, many of the recent beneficiaries of the
boom have financed places when it was already tough to get a loan.

If there were any lax lending policies that was some time
ago.

In fact, APRA recently removed the cap it imposed on lending
to investors. There is also anecdotal
evidence that the Reserve Bank is now encouraging the banks to be more generous
in their lending policies.

Any relaxation won’t happen till the banks have taken their
medicine from the Royal Commission. But
relax lending standard, eventually, they will do.

Here’s Why, in 12 Months, We Will Be More Optimistic

Unlike previous housing market slowdowns which have typically
been driven by an economic slowdown (such as the last recession or the GFC) or
higher mortgage rates, this slowdown has been manufactured via tighter credit
conditions.

Over the course of 2019 we will see these conditions relax
slightly. While interest rates and the
economy are benign – and may even become stimulatory.

This week the Australian Bureau of Statistics reported an
improvement in the underutilisation of the workforce (ie more people have more
work to do).

The improvement has been driven by New South Wales (6.3 per
cent) and Victoria (6.5 per cent), where the jobs markets have now picked up to
levels consistent with stronger wages growth.

Wage growth is normally a precursor to property price
growth.

The other side of the equation is also getting more benign
for property. Few experts predict a rate
rise soon and some, such as AMP’s Shane Oliver, are even predicting a rate cut
in 2019.

Undoubtedly, the tsunami of new apartments coming on line
plus restrictions on foreign investors mean the boom days are long gone, but we
are far from wrist-slashing territory too.

Last year 262,500 people migrated to Australia. Despite the headlines about property crises
we forget that just over a quarter of a million new people call Australia home
every year.

And there is still plenty of stuff happening that will
stimulate demand for property. The
massive infrastructure spends in each state boosts wages, meaning Australians
can spend more on their housing.

The Roy Morgan Wealth Report calculated that the average
Australian’s personal assets are now worth 7.9 times average debts, compared
with 7.2 times debts a decade ago.

Roughly half Australia’s personal wealth is held in the form of housing (51.9 per cent). In a decade’s time many of us will see 2018’s property prices for what they are – a correction not a collapse.

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